Federal Parliament's House Economics Committee is examining the laws governing foreign investment following community concern over a rise in Chinese property investment.

According to a report in The Sunday Telegraph, Coalition MPs have raised concerns that young families are being priced out of the home buying market.

The parliamentary inquiry will be chaired by Victorian MP Kelly O'Dwyer with public hearings held in "real-estate hot spots", the report added.

Speaking to ABC Radio this morning, Ms O'Dwyer said the committee would look into the current foreign investment framework to assess how it accords with real estate and whether it's driving up prices.

"The great Australian dream is to own your own home and we know that's pretty difficult even with two incomes and lots of years of savings and a large mortgage so we want to make sure we’re not making it even more difficult" Ms O'Dwyer added.

Opposition leader Bill Shorten told a press briefing this morning that Labor will be "supportive and cooperative" with the inquiry but added that foreign investment is not the only issue.

"We’ve got to make sure that ordinary Australians can get their deposit together, we’ve got to make sure that the land is released, that they have adequate infrastructure," he said.

A report released earlier this month by Credit Suisse estimated that Chinese buyers are expected to purchase $44 billion worth of Australian residential property over the next seven years.

Up to 12 per cent of all new housing purchases are by wealthy Chinese investors.

The investment bank estimates that 12 per cent of all new housing purchases and up to 18 per cent in Sydney and 14 per cent in Melbourne are by Chinese buyers.

According to the report, Chinese buyers comprise an estimated $5bn worth of property purchases in Australia per annum.

The findings follow Foreign Investment Review Board (FIRB) data that shows Chinese investors were the largest source of foreign investment in Australian property in 2012-13 (China ramps up Australian property purchases 1 March 2014).

The number of Chinese who are able to afford an apartment in Sydney is expected to rise by 30 per cent by 2020.

Chinese buyers bought $24bn of housing over the last seven years.

Macquarie Group analysts will run an east coast IPO roadshow this week for the float of $500 million aged care provider Japara Holdings, ahead of a $300m to $400m equity raising tipped for early next month.

The analysts will visit fund managers in Sydney and Melbourne while the form and pricing of the IPO are finalised. The market appears to be favouring back-end bookbuilds and indicative price ranges, and Japara is likely to follow suit.

CBA Equities and one other broker are understood to have been added to the ticket to assist sole lead manager Macquarie Group on Japara, the country's fourth-largest aged-care provider.

Japara’s analyst roadshow comes after a successful pre-IPO visit to Asia last month. Macquarie Group and Japara chief executive Andrew Sudholz courted institutional investors in Hong Kong, Singapore and New Zealand after a strong reception from domestic institutions.

Advisers are working to an indicative early April bookbuild date and a May listing, amid a growing pipeline of IPOs post earnings season.

Macquarie is likely to tap the market for between $300m and $400m. Post-float Japara will have $150m issued in new equity, and the remainder will be sell-down equity, with owners and management to make partial or full exits. Major shareholders in Japara Holdings included managing director Sudholz and director Julius Colman, who each had a 31.24 per cent stake at June 30.

After the terms of the IPO are bedded down, Japara shareholders will be asked to vote on a company restructure Macquarie is drawing up. The restructure of Japara would merge the operating company, Japara Holdings, with Japara property trust, which it manages. Under the restructure, management would partially sell down their stakes but emerge with a substantial holding in the merged entity.

Japara, which has a valuation of about $500m before $150m in debt and offer costs, is likely to be priced at least in line with the broader aged-care sector's multiple of 10-times current earnings before interest, tax, depreciation and amortisation. While it has no listed Australian comparables, it is being compared with NZ's Ryman Healthcare and Summerset Group, which are enjoying high trading multiples. Ramsay Health Care’s stellar forward trading multiple of 30.4 times earnings is also likely to help Japara’s cause.

Japara, which has 3000 beds with around 3700 staff and owns and operates 25 aged-care sites and five retirement homes in Victoria, NSW, South Australia and Tasmania, is being pitched as a private hospital-style business with a growing asset base and secure and rising government revenue streams. It also has a low regulatory risk profile. Other key selling points include the uncapped demand for health and aged-care services and a booming ageing population.  

Non-executive directors Allan Reid and Robert Peck held 19.52 per cent and 15.62 per cent respectively at June 30, according to documents lodged with the Australian Securities & Investments.

Bookbuilds that are set down for this month include the $NZ808m IPO of up to 49 per cent of the New Zealand government’s Genesis Energy, which is heading for a dual listing on the ASX on April 17.

On Friday, investors will be bidding into the $155m float of property fund manager 360 Capital Group. Meanwhile, the $500m float of hotelier Mantra is to be shopped to investors in Asia and Europe next week.

Last week saw the first post earnings season IPO fail to get away. Childcare roll-up Sterling Early Education could not raise sufficient funds for its $200m bookbuild.  

(Reporting by Amanda.Saunders@businessspectator.com.au

Editing by Miranda.Maxwell@businessspectator.com.au )

Chinese new home prices lifted at a slower pace in February, while foreign direct investment also rose, official data shows.

Average new home prices in 70 cities rose by 8.2 per cent in February compared to a year ago, slower than a rise of about 9 per cent in January.

Prices edged up by 0.3 per cent in February when compared to the previous month.

The country attracted $19.3 billion of foreign direct investment (FDI) in January-February, up 10.4 per cent year over year, the Ministry of Commerce said.

The ministry didn't break out February data. Statistics for the first two months of the year are often combined to reduce distortions from the Chinese Lunar New Year.

The ministry previously reported January FDI at $10.76bn which was 16.1 per cent higher year over year.

If there were no adjustments in the data February alone would be $8.54bn, according to calculations by The Wall Street Journal. FDI in February last year was $8.2 billion.

Outbound investment, or nonfinancial overseas direct investment, was up 37.2 per cent in the January-February period at $11.5bn.

Unseasonably cold weather appears to have chilled new-home construction in February, but underlying figures suggest building could be poised for a spring rebound.

US housing starts decreased 0.2 per cent to a seasonally adjusted annual rate of 907,000, the Commerce Department said Tuesday. The slight drop comes after starts tumbled 11.2 per cent in January, though that month's pace was revised up from the previous estimate.

Building permits, a sign of future construction typically influenced less by weather, advanced 7.7 per cent to a seasonally adjusted annual rate of 1.02 million last month. That was the strongest pace since October.

Readings for both starts and permits were above expectations. Economists surveyed by Dow Jones had forecast a pace of 905,000 starts in February and 955,000 building permits.

In a positive sign, single-family starts rose 0.3 per cent in February. That was the first increase in the category since November.

New construction of multi-family properties, which tends to be more volatile, decreased 1.2 per cent last month.

While housing starts in February remained below December's pace of above 1 million units, the latest figure is stronger than readings last fall. Still, home building remains well below the 50-year historical average of 1.5 million starts per year.

Weather likely influenced the recent housing data. Unseasonably cold temperatures can prevent builders from breaking ground and depresses demand for homes by discouraging would-be buyers from shopping.

However, the housing market faces other headwinds, including elevated interest rates. A 30-year fixed-rate mortgage averaged 4.37 per cent last week, three-quarters of a percentage point above last year's mid-March level, according to Freddie Mac. Higher interest rates make buying a house less affordable for borrowers.

Builders also reported a shortage of skilled workers and available land in a National Association of Home Builders survey, released Monday. The industry group's builder confidence measure reflected poor market conditions for the second straight month in March.

The housing data comes as other elements of the economy began to thaw after a winter chill. Last month, the pace of hiring was the strongest since November and manufacturing output recorded the best gain since August. Consumers also stepped up spending at restaurants, clothing stores and car dealers in February.

The biggest story for Australia is not Ukraine but the China credit crunch and how far the Chinese authorities will take it.

The collapse of the Zhejiang Xingrun real estate group shows that after stopping a number of past minor attacks on the Chinese shadow banking system when the implications were understood, this time around China is more serious.

I do not pretend to have inside knowledge of how far China will go, but if they keep up the pressure, I think the repercussions will be severe both for China and Australia. For Australia the effects start with the sharemarket and taxation revenue but goes all the way to the prices of residential dwellings in the China belts of Sydney and Melbourne.

The old story that if China catches a cold we get pneumonia applies more to 2014 than any past year. 

The first blow to Australia from the China credit crunch has been the price of iron ore, where traders in the December quarter stockpiled ore as a way to gain funding for steel mills. That boosted the iron ore price but the subsequent fall not only affects our major miners BHP, Rio Tinto and Fortescue, but also Australian taxation revenue.

Chinese banks have cut lending by as much as 20 per cent to sectors of the economy plagued by excess capacity. Steel is close to the top of the list. At the weekend a Shanxi steel mill went bankrupt and in response banks are believed to have further restricted credit lines to some mills -- so more bankruptcies are possible, although the better steel mills can still get credit.

Iron ore trading has a big influence on the short-term price. Stocks at the ports are still very high and some of the traders, facing heavy losses, are trying to hold onto their cargo until the market recovers.

The most widely held view among the traders is that the iron ore price will fall further given the supply available but will not fall below $95.

What is far more important than the traders’ situation is the overall demand and supply forces and the steel industry view is that in the April-June quarter there will be a pick-up in demand and high-cost iron ore mining may be reduced.

And that’s where we get to the second part of the credit crunch: property. The Chinese economy gains enormous impetus from the rezoning and development of land. Vast numbers of apartments remain empty because they are too costly to buy, but banks are happy to fund them because prices keep rising. In Australia we know that the only way to stop such situations is a nasty credit crunch where lots of people go broke. But this is very painful and so far the Chinese have not had the appetite to do it. There are many who believe that we are headed to a dangerous situation in China's shadow banking system (The hidden crisis behind copper and iron price collapses, March 11).

Certainly if the Zhejiang Xingrun collapse is allowed to lead to more failures then watch out -- it will affect demand for both steel and copper because confidence will be hit hard.

But it may also affect the ability of the Chinese to ship money into the Australian residential property market. For what it's worth, my guess is that the Chinese will ease the credit crunch when the water starts to get hot.

Industrial property giant Goodman Group has pumped almost $2 billion into developments across China, according to The Australian.

Goodman managing director of greater China, Philip Pearce, said the company hopes to have around 800,000sqm of work in progress across China within the next few months.

"We're well positioned to meet the growing demand for prime logistics space in this market where the shortage of supply is being driven by the scarcity of available industrial land. We have extensive resources, access to capital and a land bank in excess of 4 million sqm," Mr Pearce said, according to The Australian.

This week Goodman signed 95,000sqm of leasing and development deals in its China portfolio alone.

Real estate group CBRE predicts foreign investment in commercial real estate is expected to fall this year, The Australian Financial Review reports.

According to the newspaper, the strengthening global economy is creating more competition for offshore capital, as a CBRE survey of investor intentions found Australia ranked second behind China.

CBRE Australia head of research Stephen McNabb told the AFR he expects a slowing in capital inflows, but not an exodus, as Australia starts to compete with China and other growth regions for global capital.

"This is consistent with our view demand for Australian assets falls relative to improving growth stories globally, the outcome of which has been reflected in a lower Australian dollar over the past six months or so," Mr McNabb said.

Diversified property group Stockland has confirmed that it bought a $435.3 million strategic stake in Australand Property Group.

In a statement, Stockland said it purchased a 19.9 per cent stake at an average price of $3.78 per share.

This includes a 15.7 per cent direct holding and 4.2 per cent indirect interest.

The purchase will be funded through cash and debt facilities and Stockland expects it will be broadly earnings per share neutral.

The Australian reported Singapore's Capitaland sold its 39 per cent stake in Australand in an $844m block trade by Citigroup.

Capitaland offloaded a 20 per cent stake in Australand in November for around $426m at $3.685 a share.

Stockland’s Mark Steinert’s tactics in grabbing a 19.9 per cent stake in Australand are obvious. Less clear is what his strategy might be.

Once Singapore’s CapitaLand began selling down its controlling shareholding in Australand last year – it sold 20 per cent of Australand last November to reduce its security holding to 39 per cent – it was apparent that control of the locally-listed property group would inevitably become available.

Given that late in 2012 GPT had tried but failed to convince Australand to sell it the bulk of its assets, excluding its residential property division, and that Mirvac subsequently had deep and meaningful talks with Australand and its parent that didn’t produce a deal, Steinert would have recognised that CapitaLand’s signalling of its exit could trigger another bout of strategic activity.

GPT, with its failed tilt at Commonwealth Office Property, where it was out-bid by Dexus, preserved its $3 billion of acquisition capacity after walking away from that process with a consolation prize of $1.1bn of properties for its wholesale office fund. GPT’s Michael Cameron has made it clear he wants to add to GPT’s office and industrial properties to reduce its bias towards retail.

Mirvac’s diversified portfolio matches up nicely with Australand’s collection of commercial and industrial, medium-density residential and investment properties.

By grabbing a stake just below the 20 per cent takeover threshold Steinert has put his foot on Australand and made it more difficult for any prospective rival to out-manoeuvre Stockland in a contest for influence or control.

He may also have blind-sided any prospective competitor, given that when CapitaLand sold down its holding last November its remaining securities were supposed to be escrowed for 180 days, or roughly another two months.

It would appear the institutions that bought the securities in November released CapitaLand from the escrow, perhaps in exchange for participating in the sell-down to the market of the remaining 20 per cent it held (after the sale to Stockland).

In any event, while it might be possible for a rival to match his stake, Steinert has made it more difficult and more expensive and at worst has secured Stockland a strong seat at any future table where the fate of Australand is determined.

It is, however, an expensive seat. Stockland now has $435 million tied up in Australand and has paid a price that reflects the fact that Australand trades at a premium of nearly 10 per cent to its book value. Stockland itself is trading at about a five per cent premium.

The problem for all the A-REITs looking at mergers and acquisitions of any scale is that in their search for yield investors have ensured the property vehicles are quite fully priced. Against that, there aren’t that many opportunities left in the sector to gain scale and synergies and add diversity. The exit of its major shareholder via the sharemarket put Australand into play.

Stockland won’t, one assumes, want to have $435m of capital tied up in Australand indefinitely, reprising the unsuccessful opportunism of its former chief executive, Matthew Quinn, in the post-crisis environment when he locked up a very big lump of capital in GPT. Stockland lost very heavily on the GPT exposure when it sold it in 2010.

In announcing the acquisition of the Australand stake Steinert described it as strategic and referred to Australand’s ‘’diverse and complementary’’ portfolio of assets, including its industrial and medium-density residential businesses. He said those businesses were ‘’well aligned’’ with Stockland’s.

The security holding would, ‘’over time,’’ enable Stockland to explore strategic opportunities with Australand, he said.

That might suggest that he believes he might be able to use the stake to extract some assets from Australand rather than making a bid for the entire group. Or perhaps he’s contemplating an agreed merger, although it would be hard to make the numbers work for Stockland investors.

Given that there is a cost involved in maintaining a passive investment of the scale of Stockland’s interest in Australand, it is probable that Stockland’s gameplan will become clearer sooner rather than later.

Analysts are betting that Stockland’s move to buy a $435 million “strategic stake” in Australand is a precursor to a full takeover bid although some say it would be foolish to make a tilt.

Morgan Stanley is labelling its snapping up of a stake strategically questionable and “negative on face value”, while Moelis & Co says a full takeover bid would “not be prudent” and will require the issuance of equity.  

Australand overnight became the hot m&a property stock in the Australian market, after Stockland bought a 19.9 per cent in Australand from Singapore’s CapitaLand. Stockland paid an average $3.78 per share for its chunk of CapitaLand’s final 39.9 per cent selldown.

Moelis & Co’s Simon Scott said in a note that the “strategic stake” was a precursor to Stockland launching a full takeover bid but said such a tilt would require it to issue equity.

Stockland’s gearing is about 27 per cent after the stake purchase, which Moelis predicts would grow to 40 per cent if Stockland is to fully debt fund an acquisition.

“We do not view this as prudent based on the current Stockland share price,” Moelis said.  “Therefore the most likely scenario if Stockland moves to a full bid in due course, is that they bring a partner(s) to either buy some of the Australand or Stockland office assets outright or form a JV.”

A Morgan Stanley analyst note took a hard line on Stockland’s new stake, saying “on face value we see the transaction as negative” and “overall a risky strategic move that will need to be clearly explained to the market”.

Morgan Stanley also said the market would have “painful memories” of Stockland’s prior strategic stakes, pointing to its 12.7 per cent stake in GPT and 13 per cent in FKP (now Aveo Group), both bought in 2008.

“Both resulted in meaningful losses and no eventual gains,” the note said.  

The Australand stake is expected to be broadly EPS neutral for Stockland.

CapitaLand exited its 39.1 per cent stake overnight, with Citi selling shares in two separate block trade parcels. The remaining 19.2 per cent sold to institutional investors, with holders on the CapitaLand register understood to have been given priority.

Local investors appear not to have been offered any of CapitaLand’s selldown stake, JP Morgan said.

“Seems most of theAustraland stock went offshore to CapitaLand holders (or at least that’s the version I’ve heard too many times to suggest there’s not some truth to the story),” a note said.

CapitaLand started its selldown in November, when it offloaded 20 per cent of its stake – signalling that control of Australand would be up for grabs.

“Given 59.9 per cent of Australand was available in recent months through Capitaland’s complete sell-down of its strategic stake, investors will be questioning why Stockland did not act sooner or take a bigger stake,” Morgan Stanley said.

Some fund managers said Australand was a good natural fit or partner for Stockland, saying a full takeover of Australian would boost Stockland’s medium density and industrial development capabilities. However, Morgan Stanley questioned the synergies.

“Whilst on paper Australand plays in industrial and medium density (two areas Stockland wants to expand), Stockland cannot extract any synergies (either through cost reduction or restructuring Australand’s debt) without launching a full takeover for the group, which could be quite expensive (and value destructive),” Morgan Stanley said.

The average number of mortgage applications dropped 1.2 per cent on a seasonally adjusted basis despite a modest drop for interest rates, the Mortgage Bankers Association said Wednesday.

Applications volume has now dropped in four of the past five weeks according to the MBA, a trend that is a reversal from the beginning of 2014, when lower interest rates led to modest growth in applications.

On an unadjusted basis, the MBA said the market composite dropped 1 per cent from a week earlier. The refinance index fell 1 per cent, while the seasonally adjusted purchase index was also 1 per cent lower.

The average rate on 30-year fixed-rate mortgages with conforming loans slid to 4.5 per cent from 4.52 per cent the previous week. Rates on 30-year fixed-rate mortgages with jumbo-loan balances fell to 4.39 per cent from 4.41 per cent.

The average rate for 30-year fixed-rate mortgages backed by the Federal Housing Administration declined to 4.13 per cent from 4.18 per cent the prior week.

The average rate for 15-year fixed-rate mortgages slipped to 3.52 per cent from 3.53 per cent. The 5/1 ARM average declined to 3.09 per cent from 3.18 per cent.

Possible restrictions on foreign investment in the Australian housing market will be considered by a new parliamentary body despite warnings of a collapse if access is tightened, The Australian Financial Review reports.

The committee will address claims Chinese buyers are artificially driving up the prices in parts of Sydney and Melbourne, according to the newspaper.

However property groups warn the supply of new units in Sydney would fall by as much as 30 per cent if offshore buyers were excluded in anyway.

Committee chair Kelly O’Dwyer said the inquiry was not focused on investors from any country in particular, adding “investment should increase Australia’s housing stock,” the AFR reports.

Federal Parliament's House Economics Committee has released the terms of reference for its inquiry into foreign investment in real estate.

The parliamentary inquiry was formed after Coalition MPs raised concerns that young families are being priced out of the home buying market.

Despite a recent increase in community concern over a rise in Chinese property investment, the chair of the committee, Victorian MP Kelly O'Dwyer said the inquiry is not focused on investors from any particular country.

A report released earlier this month by Credit Suisse estimated that Chinese buyers are expected to purchase $44 billion worth of Australian residential property over the next seven years.

The committee will look at the economic benefits of foreign investment in residential property and whether it is is actually increasing the supply of new housing and bringing benefits to the local building industry and its suppliers.

It will also look at how Australia's foreign investment regime compares internationally as well as determine whether the policy framework can be enhanced.

The committee is calling for submissions, which must be received by Friday May 9.

Wealth manager AMP says it has lifted its holding in Australand Property Group, a day after Stockland bought a strategic stake in the group.

AMP now holds 81.8 million voting shares in the property group, lifting its stake to 14.13 per cent, up from 8.29 per cent previously.

Yesterday, Stockland said it bought a 19.9 per cent stake in Australand, after Singapore's CapitaLand sold its 39 per cent stake.

AMP appears to be one of the few Australian institutions given a look in on CapitaLand’s 39 per cent selldown of Australand stock, with the wealth manager revealing today it had snapped up a 5.84 per cent stake. 

Citi ran Singapore real estate giant CapitaLand’s exit of its holding overnight Monday, with Stockland taking 15.7 per cent of the bookbuild, and the rest going to institutional investors.

For Stockland, the transaction formed part of a broader 19.9 per cent “strategic stake” purchase for $435.3 million, with the rest coming from indirect holdings. 

Participants in CapitaLand’s first selldown – which saw it offload 20 per cent last November – are understood to have been given priority for the bookbuild this week.

It is also understood that CapitaLand’s existing shareholders and offshore investors were given priority over Australian institutions.

AMP’s ability to snare a 5.84 per cent stake indicates it likely participated in the first tranche in November, and points to its strong relationship with Citi.

The move increased the wealth giant’s Australand holding to 14.13 per cent from 8.29 per cent. AMP is understood to have paid $3.72 a share.

“If you are being told there is a strategic buyer, it doesn’t take a genius to work out that it’s worth buying stock at $3.72 that is going to be worth at least four-something in a takeover,” one analyst said.

JP Morgan analysts Adam Fairfax, Cameron Wood and Nick Mannion said in a note yesterday that many local investors appeared not to have been offered CapitaLand’s stock.

“Seems most of the ALZ stock went offshore to CAPL holders (or at least that’s the version I’ve heard too many times to suggest there’s not some truth to the story),” the note said.

When CapitaLand started its selldown in November, it signalled that control of Australand would be up for grabs.

Stockland paid an average $3.78 per share for its strategic stake in Australand.

Sales of existing homes in the United States have dipped in February, driven by rising home prices and severe winter weather, the National Association of Realtors says.

Sales of used homes fell 0.4 per cent to an annual pace of 4.60 million February, matching analyst expectations and down from a rate of 4.62 million in January. The February sales pace was the lowest since July 2012, NAR said.

Sales of single-family homes, the largest part of the market, edged down 0.2 per cent. Sales of condominiums and co-ops dropped 1.8 per cent.

The median price for all used housing types was $189,000, up slightly from January. The median price gained 9.1 per cent from February 2013.

NAR said on Thursday that conditions in February were roughly the same as in January, but that with an expected pickup in job creation, home sales should trend up modestly over the course of the year.

"We had ongoing unusual weather disruptions across much of the country last month, with the continuing frictions of constrained inventory, restrictive mortgage lending standards and housing affordability less favourable than a year ago," Lawrence Yun, NAR chief economist, said in a statement.

But Ian Shepherdson of Pantheon Macroeconomics noted that the underlying trend in existing-home sales was clearly downward long before the bad weather started.

"It seems reasonable to think that at least some of the drop in the past three months reflects the severe winter and will reverse. Whether that will be enough to generate an increase in activity is another question, though, given that mortgage demand continues to fall," he said.

Retail giant Westfield Group has generated £597 million ($1.1 billion) from the sale of three UK shopping centres to UK retail landlord Intu Properties.

The expected sales of Merry Hill, Derby and Sprucefield come as Westfield’s board makes progress on the business split, where the Australian and New Zealand assets will be run by newly created Scentre Group.

Westfield will focus on the US, UK and the emerging markets in markets like Brazil, where the retail landlord has been redirecting the funds freed up from stake sales in its more traditional markets.

The company released a statement late last night, with co chief executive Steven Lowy saying the sales were in line with the company’s strategic shift.

''Post completion of these divestments, the UK/European portfolio will comprise our two major London assets - Westfield London and Stratford, which are already two of the best retail destinations in Europe,'' Mr Lowy said.

''It will also include the major development opportunities at Milan in Italy and Croydon in London, which we expect to be amongst Europe's top retail destinations."

Trade Minister Andrew Robb has played down public concerns about Chinese investment in Australia's housing market.

Last week Treasurer Joe Hockey set up a parliamentary inquiry to examine foreign investment in residential real estate.

There are concerns foreign investors may be pushing up house prices to the detriment of first-home buyers.

Mr Robb said he had heard all the arguments against foreign investment before - pointing to concerns about Japanese investment in the 1980s and American investment before that.

"The fact of the matter is, when you get foreign investment even in domestic housing ... it does lead to a massive increase in the stock of housing," Mr Robb told Sky News.

"This year we've seen the biggest increase in the approvals for new houses in 15 years."

Meanwhile, Mr Robb is confident of inking a free trade deal with China before the end of the year.

"I see no reasons why it can't be achieved," he said.

"One of the preconditions for a successful free trade agreement is to have political will on both sides to make some difficult political decisions."

Prime Minister Tony Abbott hopes to make significant progress on those negotiations when he visits north Asia in early April.

Negotiations have stretched over several years, but during a recent address Chinese Premier Li Keqiang vowed to accelerate the deal.

Mr Robb said Chinese were looking to increase investment in Australia and gain concessions on labour mobility.

The parliamentary inquiry into foreign investment in residential real estate will report back on October 10.

Trade Minister Andrew Robb claims foreign investment in Australian real estate is increasing housing stock.

Last week Treasurer Joe Hockey set up a parliamentary inquiry to examine foreign investment in residential real estate.

There are concerns foreign investors may be pushing up house prices to the detriment of first-home buyers.

Mr Robb said he had heard all the arguments against foreign investment before - pointing to concerns about Japanese investment in the 1980s and American investment before that.

"The fact of the matter is, when you get foreign investment even in domestic housing ... it does lead to a massive increase in the stock of housing," Mr Robb told Sky News.

"This year we've seen the biggest increase in the approvals for new houses in 15 years."

Meanwhile, Mr Robb is confident of inking a free trade deal with China before the end of the year.

"I see no reasons why it can't be achieved," he said.

"One of the preconditions for a successful free trade agreement is to have political will on both sides to make some difficult political decisions."

Prime Minister Tony Abbott hopes to make significant progress on those negotiations when he visits north Asia in early April.

Negotiations have stretched over several years, but during a recent address Chinese Premier Li Keqiang vowed to accelerate the deal.

Mr Robb said Chinese were looking to increase investment in Australia and gain concessions on labour mobility.

The parliamentary inquiry into foreign investment in residential real estate will report back on October 10.

Over the past few years, there has been rising concern about foreign investment in Australian real estate. Barely a week goes by without an anecdotal report from someone who lost out at auction to a ‘foreigner’ or a real estate agent who reported a sharp rise in interest from their Chinese clients.

In response to these public concerns, the House of Representatives has released its terms of reference for its inquiry into foreign investment in Australian residential real estate. But it appears that the inquiry will fail to dispel the fears that many Australians have about foreign investment.

The Committee has been asked to examine: the economic benefits of foreign investment in residential property; whether such foreign investment is directly increasing the supply of new housing and bringing benefits to the local building industry and its suppliers; how Australia’s foreign investment framework compares with international experience; and whether the administration of Australia’s foreign investment policy relating to residential property can be enhanced.

Currently, the Foreign Investment Review Board is charged with overseeing applications for foreign investment in Australian real estate. However, the system and the gathering of statistics is a bit of a farce.

Legally, foreign investors cannot buy established dwellings as investment properties. However, temporary residents can apply to purchase one established dwelling to live in while in Australia.

Temporary residents are legally required to sell that home when they leave Australia but it does not appear to be strongly enforced. Foreign investors can get around the FIRB rules simply by nominating a temporary or permanent resident to buy the property on their behalf. The rules seem to be written on the assumption that capital flows are not mobile.

I see three primary issues with the terms of reference as they currently stand.

First, the inquiry appears set to focus primarily on investors living overseas, but it is the behaviour of temporary residents that should be of greatest concern. It is quite simply too easy to get around the FIRB rules for temporary residents, encouraging foreign investors to increase their holdings of Australian property.

Second, they have not explicitly stated that they will address information collection or publication. Current information collection is slow and opaque, leaving the public uncertain surrounding the nature of foreign investment. Who is buying Australian property and to what extent? It is frustrating that anecdotal evidence is the best available evidence that we have on the state of foreign investment in Australia.

Third, there is no mention of the costs of foreign investment into Australian real estate. The inquiry is framed under the assumption of benefits but the public is primarily concerned about the cost. The reason this inquiry exists is because of concerns that Australians are being priced out of the market.

I have changed my opinion on foreign real estate investment a number of times over the past few years. Initially I was more than happy to believe the FIRB data, which suggested that there was no issue. But now I recognise that these data have severe limitations.

I suspect that foreign investment in Australian real estate is not as high as anecdotal evidence suggests nor as low as the FIRB reports. But like everyone else, I cannot base that on any tangible evidence.

As for the costs of foreign investment? According to Reuters, cash-strapped Chinese residents are selling their luxury homes in Hong Kong, with some knocking off up to a fifth off the price, as a liquidity crunch looms in China.

Chinese property investment in Hong Kong outstrips investment in Australia but that is the type of shock we leave ourselves open to by allowing practically unfettered investment into Australian property. Widespread foreign investment leads to a more volatile housing market --- greater gains during upswings but also greater losses during downturns.

The current boom in house prices is potentially one such example of this phenomenon. The upswing has almost entirely been driven by speculative activity, particularly in Sydney but also to some extent in Melbourne. A lot of this won’t be foreign investment, but a rising share has been because we simply do too little to track the purchases.

Australia’s economic prospects are already intrinsically tied to China’s fortunes. We survived the global financial crisis due to our close proximity to a strong Chinese economy but with their economy set to slow significantly over the next decade do we really want to enhance those ties? Do we really want our $5 trillion housing sector to move at the whims of foreign interests?

The inquiry into foreign investment into Australian real estate is both necessary and timely. But are they asking the questions that Australians want answered? That is far from clear.

For the inquiry to address the real issues, it must focus on the behaviour of temporary residents, improve the quality of data collection and information, and analyse the potential macroeconomic costs and implications of widespread foreign investment. The terms of reference leave me far from confident that this will be the case and we may instead receive an inquiry that fails to address the public’s concerns.